Is It Worth Paying A Credit Card Annual Fee?

Have you ever considered signing up for a credit card only to be put off as it has an annual fee? Whilst annual fees can be daunting or seem a waste of money, they can make sense to pay depending on your individual circumstances. In this post, we are going to look at how you can work out if you will get enough value to pay a credit card annual fee…

How do I work out if a credit card annual fee is good value?

Treat a credit card annual fee the same way you would for any other membership or subscription you have. Ask yourself what real value are you getting (or will you be getting) from the card? Ignore the benefits that say worth X amount of pounds. How much are they worth to YOU? Do the benefits actually benefit you or offer you a saving on something you would have otherwise paid for? Let’s take the Platinum Card from American Express as an example. It has an annual fee of £575 and the following main benefits…

• Membership Rewards Points
• Elite Hotel Status
• Airport Lounge Access
• Worldwide Travel Insurance
• Car Hire Insurance
• Eurostar Lounge Access
• £10 Monthly Addison Lee Credit
• £100 Annual Harvey Nichols Lifestyle Credit
• $200 Cashback On All Onefinestay House Rentals
• Access To Amex’s Fine Hotels & Resorts Scheme

Quite a few right? But let’s break each one down to see what value they might offer…

Membership Rewards Points

The ability to earn Membership Rewards Points is available on other American Express cards (including one without an annual fee.) The earning rate is also the same across all membership reward cards so I would value this at £0.

Elite Hotel Status

Both you and your main supplementary cardholder will receive Gold elite status in Marriott Bonvoy, Radisson Rewards, Hilton Honors & MeliaRewards. The value of these depends vastly on your hotel stay habits. If you are someone who doesn’t stay in chain hotels or likes to stay in Premier Inns you aren’t going to get any value here.

The only status out of the above we value (as it’s probably the best mid-tier hotel status) is Hilton Gold. With Hilton Gold you get free breakfast and space availiable upgrades (amongst other benefits.) As we often stay in Hilton hotels but not quite enough to ‘earn’ Gold status we do value this benefit. Whilst we’d never pay ‘hotel’ prices for breakfast we’d happily spend £20 between us each day for it. We average 3 weeks in Hiltons a year so we’d value the breakfast at £420. We also have great results with the ‘space available’ upgrades but as we’re typically happy in the room we’ve booked it doesn’t add any financial saving for us. Look at the benefits (links above) to work out what, if any, benefit the statuses will bring you.

Airport Lounge Access

You and your main supplementary cardholder will each receive a Priority Pass card. This allows you & your supplementary cardholder (and one guest each) access to 1300 airport lounges across the world for free. You can also (as well as your main supplementary cardholder and guests) can also access the Plaza Premium Lounge in Heathrow T5 & Amex’s range of centurion lounges around the world. The value of this would depend on your usage and what class you fly in.

If you fly business class or status you generally have lounge access anyway. Work out how many trips you/your partner makes and if you would otherwise need or pay for lounge access. We normally do a couple of long-haul trips as a couple a year but as these are in business class there is no value here for us. Outside of this, I tend to do 5/6 short-hauls either as a couple or with friends in the Economy where I would pay for lounge access. On average access costs around £35 so say 4 trips as a couple – £280 – and 2 with friends £140 (with lounge access departing to/from the UK.) This means I would put a value of £420 on this benefit.

£10 Monthly Addison Lee Credit

Each month you can receive a £10 credit back on an Addison Lee journey. I don’t value this highly, if you live outside a major city it will be hard to use. Normally I take an Uber but when Uber is surging it can be worthwhile to use. Download both apps to compare pricing to see how much saving you’d make if you’d use the benefit. I maybe use it 3/4 times a year so would value on the conservative side at £30.

£100 Annual Harvey Nichols Lifestyle Credit

You will receive £100 to spend either online or in-store at Harvey Nichols. £50 to spend January – June and another £50 to spend July – December. There is no minimum spend required. This is in effect, ‘free cash.’ So whatever you purchase as long as you would’ve purchased elsewhere (and the price is the same) is a genuine saving. Have a look – https://www.harveynichols.com/ – and see what, if any, saving you’d make using it. I’m going to go with £90 worth of value as most items I compared were similar or the same price elsewhere.

Eurostar Lounge Access

You and your main supplementary cardholder will receive access to the Eurostar Lounge in London, Brussels and Paris regardless of your class of travel. No guests are allowed, unfortunately. You can’t purchase access either so normally you’d only have access if you were travelling Business class. As we don’t travel by Eurostar often we value this at £0. It would be difficult to give this any more value when the main reason to travel Business would be the food + seating on the train rather than lounge access. Standard Premier has the same seating without the ‘better’ food and come to face it standard isn’t that bad bringing something to eat from the station!

Car Hire Insurance

The Amex Platinum comes with car hire insurance in the UK and abroad. It includes up to £50,000 for theft or damage to your vehicle (including any applicable excess.) And up to £500,000 (Up to US$1 million in USA) for damage to another person or their property. Obviously, you can pretty much pay what you want for insurance with varying levels of cover. We don’t drive so obviously value this at £0 but if you, and you do hire cars, have a look at the cost of excess insurance cover or an Excess Waiver from the car hire company. You can then add this to the value you will get from the card!

Worldwide Travel Insurance

Cardholders and upto five other supplementary cardholders (and their families) recieve wordwide travel insurance. You will need to opt in to this on your application form (it’s free.) The cover is valid for persons up to to the age of 70. Some benefits require you to pay for your trip with an American Express card. However the core medical benefit is automatic. You can read more about the policy here – https://www.americanexpress.com/uk/benefits/the-platinum-card/platinum-insurance.html. We only use this for us as a couple so would value at around £100. To find out your personal valuation compare what you’d normally pay for travel insurance (normal excess and cover etc you’d choose) to get a real ‘value.’

$200 Cashback On All Onefinestay House Rentals

Platinum cardholders recieve $200 cashback on every Onefinestay rental they make. Looking at the prices and options $200 isn’t enough of a dent to make a stay worthwhile for us. So this benefit we are going to value at £0. If you stay in high-end homes when travelling you maybe able to get some value here.

Access To Amex’s Fine Hotels & Resorts Scheme

This gives you extra benefits at high-end hotels such as free breakfast, 4pm check-out and an additional experience credit worth $100 (e.g. to spend on food/drink.) You can view all the benefits here – https://www.americanexpress.com/en-gb/travel/discover/benefits – If you regularly stay at high-end hotels your return here could easily exceed the annual fee. As we don’t use this we value this at £0. If you do compare the cost/benefits from booking elsewhere to here to work out a ‘real’ value.

Summary

As you can see depending on your circumstances the value you get from a card can vary heavily! We get over £1,000 worth of value from our card, you may get more… you may get less… that’s why it’s important to work it to see.

What about other credit cards with annual fees that don’t have so many benefits?

In these cases compare the difference between the paid option and the closest ‘free’ alternative. For example the BA Premium Plus & the free BA Amex.

Per £10,000 spent on the BA Premium Plus card you’d earn an extra 5,000 Avios worth £50, if you value them at 1p like us (see how to work out your own valuation here.) So if you considered the earning rate only you’d need to spend £50,000 on the card to ‘break-even’ compared to the free card.

Where the real value is, depending on your circumstances, is the 2-4-1 voucher. This (incase you didn’t know) allows you to get two tickets for the Avios cost of one (you will need to pay ‘taxes & fees’ on both.) Unfortunately due to high ‘taxes + fees’ the economy only voucher at 12K spend on the free BA Amex will max out at around £215 value (21,500 Avios return to a Zone 3 country with reward flight saver taxes of £35pp.)

The 2-4-1 voucher on the BA Premium Amex at 10K spend is a completely different story! It’s not restricted to economy which means you can use it for long-haul business or first class. If you’d normally fly business class you can use the value as a real saving/amount of value. For example, return Business Class flights to Orlando costs 125,000 Avios off-peak + £749.96. The 2-4-1 voucher would get you another ticket for just another payment of £749.96 (taxes + fees.) If you value you Avios at 1p (see how to work out your own valuation here.) that’s £1,250 worth of value. Compare this to the cash price (and this is admittedly an extreme example) of £7,106.12 for the same flight! Whatever way you look at it, if you would of flown business you make a ‘real’ saving.

If you are eligible for a sign-up bonus the maths could change in your favour… at least for the first year…

We value Avios at 1p (see how to work out your own valuation here.) That means if you’re eligible for the sign-up bonus on the Platinum Card of 30,000 Membership Reward points (converts into 30,000 Avios) you’d be getting an extra £300 worth of value in the first year. With the BA Premium Plus card, if you’re eligible for the sign-up bonus of 40,000 Avios you’d be an extra £400 worth of value in the first year which puts you instantly into profit!

If you are new to collecting points take a look at our guide at how newcomers to American Express as a couple could make a HUGE 200,000 Avios between them by utilising sign-up bonuses and referral offers! – https://pointsuncovered.com/american-express/fast-track-yourself-to-2000000-avios-points

It can make sense to pay a Credit Card Annual Fee…

As you can see sometimes it can make sense to have a credit card with an annual fee. It purely depends on your circumstances, it isn’t a decision anyone else can take for you, so please do always seek the advice of an independent financial advisor. Do you have any credit cards with annual fees?